Why Facebook is a Long-Term Loser

I'm not a huge fan of Facebook, although I admire what the company has done and how it does it, to a point. But the recent purchase of Instagram, the rather dumb junk snapshot site, is an indication that Facebook does not have what it takes to stay in business. Let me explain.

When one company buys out another company, there is usually a make-or-buy decision involved. The company asks: Can we afford to do something similar on our own? What would it cost? How does that compare to what the acquisition would cost us?

Microsoft was the best at making this make-or-buy decision on the "make" side of the equation, although it was always perceived that the company stole the ideas. Well, yes, that is kind of what make-or-buy involves. Ideas are not owned by anyone; their implementation or aspects of their invention may be protected but the ideas themselves are public domain. You, for example, can create a Facebook-like program tomorrow if you want.

Thus, Facebook decides not only to buy Instagram but also to, according to most experts, pay far too much. Having money to burn is one thing. Actually burning the money is another.

The only possibility here is that Facebook is actually worried about Google+ and it feared that Google would buy Instagram. I saw no indications of this but it was possible, in which case Google would have had millions of customers it might have been able to shuttle into the G+ family. So, what we are actually witnessing with this questionable buyout is an emerging paranoia at Facebook stemming from fear of competition. This is not good and, as far as I'm concerned, bodes ill for the long-term survival of the company. Being reactive like this is not healthy.

This idea might actually be confirmed by the fact that almost all the Instagram users are already Facebook users. There was no real reason to buy the company.

There were a lot of different ways Facebook could have gone other than dropping a billion dollars. Think about how dumb this is when you consider that Kodak's value (adjusted for debt) is less than $750 million. So Instagram is worth more? It would not have been outside the realm of possibility for Facebook to shake on an exclusive "deal" with Instagram to make it the official junk photo HQ in some way or other. You know, like Microsoft does its embrace and extend thing.

So, here we are. No concept of make-or-buy. No deals. Just squander a billion dollars pre-IPO. Perhaps the geniuses at Facebook are doing this to balance some needed bookkeeping. Perhaps the CIA is behind this with new access to all sorts of home-brew intelligence on the public at-large. I know I can get a lot of interesting personal information about people from the various photo sites. You can identify friends and discover personal taste, for instance. It's a bonanza.

What immediately came to mind was Yahoo's dumb $6 billion purchase of Broadcast.com back in the 1990s. You've seen where Yahoo headed after that blunder. I'm now thinking that Facebook has just chosen the same paththe path to oblivion.

John Dvorak is a columnist for PCMag.com and the host of the weekly TV video podcast CrankyGeeks. His work is licensed around the world. Previously a columnist for Forbes, Forbes Digital, PC World, Barrons, MacUser, PC/Computing, Smart Business and other magazines and newspapers. Former editor and consulting editor for Infoworld. Has appeared in the New York Times, LA Times, Philadelphia Enquirer, SF Examiner, Vancouver Sun. Was on the start-up team for CNet TV as well as ZDTV. At ZDTV (and TechTV) was host of Silicon...
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